Royal Bank of Scotland out with a client note on USD 22 August 2016
The minutes from the July FOMC meeting were less hawkish than the market feared as the Committee was divided on the need for another interest rate hike. It’s important to remember that the decision to act will ultimately rest with Yellen and that there will be no rate hike until she believes a rate hike is warranted.
As our economic desk strategists not some participants stressed that the Committee needed to consider the constraints on the conduct of monetary policy associated with proximity to the effective lower bound on short-term interest rates. In their view, the “some” participants noted above almost certainly includes Yellen. She seems to be sticking to her risk management policy approach and feels little urgency to raise rates.
However, the Minutes pre-date the strong July US employment report. Dudley appeared to want to stress this in his comments this week.
So could Yellen reinforce Dudley’s comments at Jackson-Hole on Friday?We think not. It’s an academic conference that concentrates on long-term themes and has in recent years moved away from short-term policy signals. The tone may therefore reflect recent comments from Powell/Williams about low productivity growth and low neutral rates. But Yellen talking about lower long-term rates isn’t the same as dampening expectations of a near-term rate increase.
We therefore still believe risk/reward favours USD upside against the EUR, GBP and JPY. Discussions about lower terminal rates should ensure that EM FX out-performs the G4 currencies.
“We work with governments to understand what drives economic, social and environmental change. We measure productivity and global flows of trade and investment. We analyse and compare data to predict future trends. We set international standards on a wide range of things, from agriculture and tax to the safety of chemicals.”
A narrowing output gap and approaching monetary tightening are reducing the US economy’s ability grow at around 3% a year, Fitch Ratings says. We cut our outlook for US growth to 2.2% in 2015 and 2.5% in each of 2016 and 2017 in our latest quarterly “Global Economic Outlook”, published on Tuesday, down from our previous forecasts of 3.1% for 2015 and 3.0% for 2016.
Our lower full-year growth forecast for 2015 follows a weak first quarter in which the US economy contracted 0.2% on an annualised basis. Temporary factors such as the West Coast port strike and very cold weather on the East Coast were partly to blame. Without these, growth can bounce back in 2H15 as the labour market continues to strengthen. The economy created 223,000 jobs in June and the unemployment rate fell to 5.3%, although average hourly earnings did not grow.
The US is growing faster than the eurozone and many other high-income countries, but a number of supply-side and demand-side factors mean its economy is unlikely to sustain 3% annual growth through 2016-2017. The recovery from the recent recession has been more sluggish than in previous episodes. The labour force is growing more slowly than in previous decades due to demographic changes.
Consumer spending growth is picking up but still lags behind the improving labour market, rising household wealth and confidence indicators, and consumers appear more inclined to save since the financial crisis. The housing sector is growing modestly. A stronger dollar and slower growth in trading partners undermines export performance. Higher bank lending has partly been directed towards M&A rather than greenfield investment. Productivity-enhancing public investment is also low.
Not only is the supply of capital and labour growing more slowly, but Bureau of Labor Statistics data this week showed total factor productivity increased at an annual rate of 0.8% last year – lower than the 1.4% average in 1995-2007. Slower productivity growth combined with temporary shocks such as those in 1Q15 means annual US GDP growth has averaged just 2.2% since 2010. As the output gap gradually narrows, growth rates should converge with potential output at around this level.
Eleven trillion dollars: that’s how much of so-called Quantitative Easing the world’s central banks have done since the 2008 crisis. To put that in perspective, with eleven trillion dollars you could pay off pretty much all U.S. household debt – all mortgages, all car and student loans, credit cards – you name it.
So what did the global economy get for $11,000,000,000,000 in QE?
Following a post-recession pop, we got collapsing world trade growth, and that’s even with prices falling over the past three to four years.
It discusses ways we can boost our productivity, not just at work but in our non-market activities as well. Working hard is less efficient than working smart. The information itself is entertainingly delivered in a about 3 1/4 minutes. How efficient.
Whenever I meet investors around the world, the most pressing question is: what happened to India? This was an economy that grew at nearly eight per cent for an entire decade (2003-2013). So much was expected from it. It was supposed to prove to the world that even a noisy, chaotic and populous democracy could deliver high growth. It was seen as the answer to China and its authoritarian economic model. Though everyone knew that India had certain institutional flaws, they were willing to cut it some slack in the hope that the country would succeed.
Given all the hope and hype, it’s not surprising that there is now so much disappointment with India. In meetings, I now have to defend our growth record and explain why five per cent growth is not the new normal for India. Eighteen months ago, we would use charts explaining how India was about eight or ten years behind China on most economic indicators, and thus was poised for an acceleration in demand across product categories. Today, however, most investors refuse to acknowledge India as a competitor to China. Any comparison is rubbished because we are seen as being incapable of execution.
To many investors, India does not seem to have a long-term strategic game plan, and the lurch towards populism is scary. Everyone is convinced that this is a largely self-inflicted problem. The great demographic dividend is seen by most as an upcoming demographic disaster, given India’s inability to provide skills training to its people or to create jobs. Read More
Despite exuberance at European and Chinese PMIs, the US clean shirt just skidded with a miss. Against expectatins of a high YTD 54.0 print, PMI posted 52.8 – its lowest in 3 months and falling for the second month in a row. New orders fell at the slowest pace since April (boding ill for durable goods) and the employment sub-index grew at the slowest pace in 3 months(suggesting payrolls will not hold up well). Of course, as Markit notes, bad news is good news “as far as policymakers are concerned there are some worrying signals in relation to the sector’s growth momentum, which vindicate the Fed’s decision to hold off on tapering its asset purchases.”
IMD, a well-known business school in Lausanne, Switzerland, has raised Japan three places in its ranking of international competitiveness as a result of Prime Minister Shinzo Abe’s expansionary economic policies
In IMD’s 2013 World Competitiveness Yearbook released Thursday, Japan climbed to 24th place, up from 27th in 2012.
“Abenomics” is a combination of monetary easing, fiscal spending and longer term economic reforms aimed at revitalize the economy. IMD said Abenomics seems to be making the Japanese economy more dynamic. Read More
Reserve Bank Governor D Subbarao today said a growth rate of 5-6% is not sufficient for the economy, which has the potential to grow at double digit rate provided some issues are addressed.
“If we do the right things, we can get back on the track of the double digit growth,” he said at the IIT Kanpur Alumni meet here.
Pointing out some of the long-term challenges for the growth, Subbarao said there is a need for stable and predictable macroeconomic environment, removal of infrastructure deficit, skill improvement and job creation.
He said there is also need for raising agriculture productivity, and improvement of social sector outcome. Read More